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Opening Speech for the 2018 Investment Statement Symposium

Issue date: 
Tuesday, 20 March 2018
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Speech delivered by the Secretary to the Treasury, Gabriel Makhlouf, 20 March 2018.


Hello everyone and welcome to this symposium on the Treasury’s 2018 Investment Statement He Puna Hao Pātiki. We have a great panel this afternoon that I know will generate a lot of interesting and robust discussion, as well as prompt some equally interesting and robust questions from you.

I’d like to open with a few words about why the Investment Statement matters for the living standards of New Zealanders, how it fits in with the Treasury’s other fiscal reports, what progress has been made since the first Investment Statement produced four years ago, and how He Puna Hao Pātiki sits within the Treasury’s Living Standards Framework approach. But as the Investment Statement published today is only the second the Treasury has done, let me start by explaining what the Statement actually is.

Why the Investment Statement matters

The Investment Statement is an examination of the Crown’s balance sheet and is required every four years under the Public Finance Act 1989. Its purpose is to describe and state the value of the Crown’s portfolio of significant assets and liabilities, how this has changed from the past, and how it is expected to change in future. It also discusses the importance, progress and principles of good balance sheet management. These principles include efficient asset management, sustainable funding, prudent risk management, collection of supporting information, and use of that information to inform subsequent decisions and actions.

So why does all this matter?  Because the government is managing the assets and liabilities on behalf of the people of New Zealand. It’s about our schools and hospitals, our superannuation and accident compensation, our state highways and state-owned enterprises. And the numbers involved are huge. At the end of June 2017, the government owned $314 billion worth of assets and owed $197 worth of liabilities, for a net worth of $117 billion. That’s around $24,000 per person. And the numbers are growing bigger. By 2022 assets are expected to reach $365 billion and liabilities $205 billion.

But more important than the numbers themselves is how these assets and liabilities are used. They provide resources which the government can draw on for raising living standards, now and into the future. Managing the balance sheet well is essential for delivering public services needed today in a way that maximises value for money, and for sustainable, resilient and adaptable public finances that will support the community for generations to come.

What the 2018 Investment Statement tells us is that the New Zealand government balance sheet is currently healthy and our public finances are resilient in the face of adverse events. This strength means we have choices. It opens up a wider range of options for policies and investments that improve the living standards of New Zealanders. And it enables better planning to confront some known long-term fiscal pressures.  As the Treasury’s 2016 Statement on the Long-term Fiscal Position He Tirohanga Mokopuna shows, demographic trends like the growing and ageing of our population and challenges such as climate change will have impacts on the government’s income and spending, and therefore the public services it provides.

How the Investment Statement fits with other fiscal reports

So you can see how the Investment Statement fits together with the Treasury’s other fiscal reporting requirements. It supplements the year-end Financial Statements of the Government of New Zealand by giving a fuller picture of the sustainability of government finances. It informs the policies and decisions made as part of the development of the six-monthly economic and fiscal updates, otherwise known as the Budget and Half-Year EFUs.  And it complements the Statement on the Long-term Fiscal Position by also taking an intergenerational view.

What ties these reports together is that they illustrate New Zealand’s ethos of openness, transparency and accountability. New Zealand topped the Open Budget Index in 2017, as we did previously in 2012 and 2015. The Investment Statement continues our world-leading approach to transparency by shining a light on the Crown’s balance sheet so that anyone with an interest can scrutinise and comment on it.

Progress since 2014 Investment Statement

Part of our responsibility to be open, transparent and accountable is to communicate what’s happened since the first Investment Statement in 2014. I’m pleased to say there has been good progress.

One of the most important steps has been setting up system-wide expectations for managing public sector assets. Government agencies are now required to report on the performance of their assets, provide more information about long-term plans, improve their cost benefit analysis for investment proposals, and monitor project implementation. These practices have increased the amount of useful information for future investment decision-making.  The Government also introduced Investor Confidence Ratings which reward good investment management performance in agencies.

Another development has been improvements to fiscal risk assessment. In the Investment Statement you’ll find an example of how we assessed the resilience of the Crown’s balance sheet through a series of stress tests, seeing how it would stand up in the case of a severe Wellington earthquake, foot and mouth outbreak, or major international economic downturn. The testing reinforced the importance of a strong balance sheet as a buffer to economic shocks and the maintenance of public services. 

A third area of progress is about maintaining a sustainable government debt market. The Government confirmed in its Budget Policy Statement that it will keep the level of New Zealand Government Bonds (NZGBs) on issue at not less than 20 per cent of GDP over time. This means the Crown will continue to issue NZGBs even if net core Crown debt falls below 20 per cent of GDP.  Setting such a minimum level gives greater certainty to the market, helps to maintain good balance sheet liquidity and ensures ongoing government access to funding.

Of course challenges remain. For example, we want more rigour in performance reporting, including the quality and timeliness of the measures reported on and the quality of the underlying data. Poor data leads to poor decisions, and in public policy that means poor results for New Zealanders.

Investment Statement and the Living Standards Framework

An ongoing challenge is to sharpen our understanding of how assets lead to improved living standards, and that’s relevant to the most significant change between this Investment Statement and its predecessor.  He Puna Hao Pātiki explores how balance sheet management can be extended to further support wellbeing using the organising principles in the Treasury’s Living Standards Framework.

As I hope some of you know by now, the Treasury has an ambition to integrate a broader conception of economics and value into the everyday work of public policy, and the Living Standards Framework is the way we are taking that forward.  Traditionally, economists have focused their thinking about the factors of production, like land and labour, and how they are combined to create goods and services. The Living Standards Framework is an adaptation of this notion: the four capitals – natural, human, social and financial/physical, which collectively I like to describe as our economic capital – are the stocks which combine to generate flows of wellbeing.

What we are now doing is taking this framework and looking at how to actually apply it in policy development and resource allocation. As I said in a speech two weeks ago, this is world-leading. No other country has done this before. No other country has progressed the idea of integrating living standards measures into public policy development from the conceptual to the concrete.

The 2018 Investment Statement is an important milestone in our work programme as we further develop the Living Standards Framework.  And it concludes that the state and trajectory of human, social and natural capitals need to be included in any analysis of balance sheet resilience and the government’s fiscal position.

It is easy to imagine how, for example, threats to physical capital from natural hazards, to human capital from the changing nature of work, or to natural capital from climate change, could significantly impact the economy and hence the government’s balance sheet from changes in revenue. And on the liability side, threats to New Zealanders’ living standards, such as natural hazards, financial crises and disease outbreaks have historically led to government responses that may need to be funded by taking on greater debt.  A strong and resilient balance sheet makes it easier to adapt to the substantial, known trends such as climate change and the ageing population.

These kinds of extensions to government balance sheet analysis will form part of a more comprehensive, living standards-oriented approach to assessing the cushioning function of the government balance sheet in future Investment Statements.


To conclude, I want to thank you for coming to today’s symposium.  It’s great to see the interest people have in our Investment Statement and in our wider Living Standards Framework programme. We have been working hard to encourage wider interest in many ways, including in recent months the establishment of the Community for Policy Research, speeches on the Living Standards Framework and natural capital, the release of discussion papers and giving several media interviews. Next week I’ll be talking about social capital at the University of Auckland, and in the coming months there will be additional discussion papers and further events, including the Third International Conference on Wellbeing and Public Policy to be held in Wellington on 5-7 September. 

By the end of what looks like a very busy year we intend to have developed a dashboard of indicators suitable for understanding intergenerational wellbeing in New Zealand.  In doing all these things, we are welcoming others to support and contribute to this challenging and exciting work.

Last updated: 
Tuesday, 20 March 2018